After Julie Castro Abrams retired from building and running the nation’s largest micro-enterprise organization, she started advising and investing as an angel investor in high potential female founders. She also started putting together a network of women who achieved a certain level of significance in their careers. The network grew to 14,000 women, many qualified as accredited investors but hadn’t become angel investors.
Accredited or sophisticated investors are wealthy people who have special status under financial regulation laws, allowing them to invest in private companies. Only a tiny percentage of people who qualify to be an angel investor become one, commented Castro Abrams.
“They [the women in the network] were hungry to be a part of an organization that was driving change for women,” said Castro Abrams. They advocated for more women to be on the boards of publicly traded corporations headquartered in California. In 2019, the state mandated that these companies include at least one woman on their boards of directors by the end of 2019.
Interestingly, these women didn’t know that one way to get on a corporate board is to invest in a startup and ask for a seat on its board. “Women are leaving power, influence, and wealth on the table,” Castro Abrams exclaimed. Those who qualified as accredited investors could invest in female-founded startups. Some might even get a seat on the board.
She is one of several women who are educating women about their power as investors.
Erika Cramer was an investment banker who started an investment boutique firm with another woman. This male-dominated industry doesn’t recognize the desire and challenges of being an active parent, so it is rare to find women founding these firms. After 10 years, Cramer and her partner sold the firm. “I wanted to have a greater impact,” she declared. Cramer turned her attention to advising and investing in startups.
“I invest in companies that have some form of social impact,” said Cramer. Inevitably, these firms were founded by women. She’s not the only woman investing in purpose-driven companies and female founders. According to The American Angel, female angels are twice as likely to say social impact is important—33% compared to 16% for their male counterparts.
According to Q4 2020 Pitchbook and NVCA Venture Monitor, while the amount of venture capital raised in 2020 by startups with female founders on the team is at an all-time high—$22.1 billion—the percentage of dollars is down from the record set in 2017—15.2% compared to 12.3% in 2020. Given how difficult it is for women to find equity investors for their startups, female investors are also dramatically more likely to consider the gender of the founders they are considering investing in. More than half—51%—of women feel the founders’ gender to be highly important, compared to 6% male investors.
Since 2004—the first year the Center for Venture Research at the University of New Hampshire started tracking angel numbers by gender—the number of female investors has increased nearly eight fold, from over 11,000 to almost 94,000 in 2019.
Over the last 15 years, angel-backed companies with women CEOs have risen steadily—jumping from 5% to 21% in 2018, according to the ACA Angel Funders Report.
With women poised to inherit a large portion of the $30 trillion that will be passed down from baby boomers and women increasingly building wealth on their own, these trends will drive the number of female angels upward.
These women want to invest in their values.
Helping birth the idea for a new kind of venture fund that would not just invest in female-founded companies but activate more wealthy women to become limited partners (LPs) was Nicole DeMeo, founder at Outfront Solutions, a branding and marketing firm.
Castro Abrams and Cramer formed How Women Invest (HWI). “Women make decisions based on their values,” said Castro Abrams. They can align their investments with their values by investing in private companies. Women are focusing on the bigger picture. When they invest, they want to achieve multiple goals—financial (a return on their investment—ROI) and social.
“Women seek self-efficiency,” said Castro Abrams. They need to believe that they can do something before they do it. You’ve probably heard the stat: Men apply for a job when they meet only 60% of the qualifications, but women apply only if they meet 100% of them.
It turns out that women are better investors than the average man, according to LouAnn Lofton, author of Warren Buffett Invests Like a Girl—And Why You Should, Too. Women spend more time researching their investment choices, taking less risk than men, and holding onto their investments longer. Women are also more likely to seek out information that challenges their assumptions.
HWI worked with Nancy Hayes on creating a two-session angel training. Hayes has been a corporate executive, CEO of two nonprofits, dean of a large college of business, and CFO of a state university, entrepreneur, and active angel investor. Her training gets women (and men) over that learning curve quickly.
An angel investor typically works alone, while a LP is part of a company—a venture capital fund. Venture capital (VC) firms are investors, such as individuals, corporations, pension funds, and foundations. These investors are known as limited partners. Angels are not obliged to offer anything other than financial support, though they might provide advice and connections. The general partners (GPs)—the administrators and managers of the fund—help portfolio companies with strategy, refer senior management, and make introductions to customers and additional funding.
In the case of HWI, the LPs are investors and the GPs are Castro Abrams and Cramer. Unlike a traditional VC, HWI engages its LPs in sourcing and vetting deals as well as supporting startups as they grow.
Typically, angel investors support startups at the very earliest stages—pre-seed and seed—and VCs come in later—Series A. However, the Covid-19 crisis and Black Lives Matter movement revealed disturbing disparities in health, employment, and justice. For example, women are 1.3 times more likely than men to have considered stepping out of the workforce or slowing down their careers during the coronavirus pandemic—particularly mothers, senior women, and Black women, according to McKinsey. These trends are activating VCs to act differently. Black- and female-founders received the largest share in US Early Stage Rounds in 2021 they ever have—30%, according to Crunchbase.
HWI’s first two investments are:
- Gray Matter Analytics: leverages evidence-based insights and recommendations to help healthcare organizations proactively reduce costs, increase return, and improve outcomes.
- Hitch: a talent-matching platform removes bias when choosing people for a team by matching skills to projects.
Both startups are founded by experienced and visionary women solving social problems while delivering a return on investment (ROI).
How will you invest your money?